Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence

Differences between large and small banks' net purchase behavior in the (uncollaterized) federal funds and (collateralized) repurchase agreements markets are documented. The larger a bank's asset size, the larger, ceteris paribus, its Federal Funds purchases. The threshold-asset size is in the region of $1 billion to $2.5 billion. For any size class, banks located in major banking centers are more likely to be net Federal Funds purchasers than are banks located outside money centers. In the collateralized repurchases agreements market, there appears to be no size of locational discrimination--indeed, the smallest banks are the largest net purchasers (as a fraction of assets) of funds on the repurchases agreements market.